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Thailand’s Kittiratt Gives Baht Target, Urges Lower Rates

Thailand's Finance Minister Kittiratt Na-Ranong
Kittiratt Na-Ranong, Thailand's Finance Minister. Photographer: Sam Kang Li/Bloomberg

Thailand’s Finance Minister Kittiratt Na-Ranong gave a target for where the baht should trade at and urged the central bank to cut the benchmark interest rate by half a percentage point to help exporters, pushing the currency to a one-month low.

Thai-based companies faced difficulties shipping goods when the baht approached a level of 30 per dollar, he said in an interview with Bloomberg Television yesterday in Hong Kong. Exports fell more than expected in January as factories struggled to resume production after the worst flooding in almost 70 years and as global demand weakened.

“Those companies have been adjusting themselves and improved their efficiency in order to barely survive,” Kittiratt said at the Credit Suisse Asian Investment Conference. “So the range of 32 to 34 would be very good.”

The minister is renewing his push for policy easing after the Bank of Thailand this week joined central banks from Australia to South Korea in keeping interest rates unchanged, refraining from adding to two previous reductions as higher energy costs boosted inflation risks. Kittiratt had urged the Bank of Thailand to lower borrowing costs and help businesses cope with the country’s worst flooding since 1942 before the monetary authority started cutting in November.

“Thailand is similar to other countries suffering from cost-push inflation because of higher energy costs that come out of the tension in the Middle East,” he said. “If the central bank would agree to let the interest rate down a little bit further, that would be good.”

Half-Point Cut

Kittiratt later told reporters he’d like to see the benchmark one-day bond repurchase rate fall by “at least” 50 basis points from its current level of 3 percent. The government plans to borrow 1 trillion baht ($32 billion) over the next two years to finance fiscal deficits and infrastructure projects, including those aimed at protecting against floods, he said.

The baht advanced 0.1 percent to 30.78 per dollar as of 9:34 a.m. in Bangkok, according to data compiled by Bloomberg. It has strengthened about 2.5 percent this year, making it the third-biggest gainer in Southeast Asia behind the Malaysian ringgit and Singapore dollar.

The benchmark SET Index declined 1.4 percent yesterday, the most in four months, erasing gains after Kittiratt’s comments. Thai Airways International Pcl fell 4.6 percent, and Minor International Pcl, Thailand’s biggest hotel operator, fell 5.7 percent.

Inflation Focus

“I don’t think the BOT will yield to government pressure,” Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong, said by phone, referring to the Bank of Thailand. “They have their own mandates and I don’t think the BOT will just target any level for the baht. As you can see from the BOT’s tone, they are primarily focusing on inflation and economic activity.”

The Thai central bank this week increased its forecast for economic growth this year to 5.7 percent from 4.9 percent, and boosted its estimate for average core inflation in 2012 to 2.4 percent from 2.2 percent. It raised the headline inflation forecast to 3.4 percent from 3.2 percent.

Crude prices, which have risen about 30 percent in the past six months, and a minimum-wage increase that takes effect on April 1 may stoke inflation in the second half of 2012, Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said this week. He warned that policy makers may “underestimate” the impact of the wage increase.

Kittiratt told reporters later in Hong Kong that the government would maintain subsidies on liquefied petroleum gas so the wage increase isn’t blamed for faster inflation.

Improving Productivity

“When employers have to pay their workers a little bit higher, they’ll be the ones who help improve the productivity,” he said in the interview. Another $3 per day for workers “won’t go into speculation of property,” he said. “It will go into a second bowl of noodles.”

Thailand’s economy, the biggest in Southeast Asia after Indonesia, contracted 9 percent last quarter from a year earlier, the steepest decline since 1998, and expanded 0.1 percent in 2011. Exports shrank 6 percent in January, as factories struggled to resume production and global demand weakened.

“The exports came down the past few months because of problems on the supply side, not because of the problem on the demand side,” Kittiratt said. “I know that major economies in the west are not that strong as they were in the past, but they are looking for value-for-money items. Southeast Asia, East Asia, are producing those items.”

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